Research Paper: Social Security Privatization

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Social security privatization is akin to a cut in marginal tax rates, according to those who are sincere advocates of social security reform in this respect, because they are sincerely affected by everything that happens to the social security system. Those who pay more taxes get more social security benefits even though there is a subsidy for low earners as well. Thus, the advocates of privatization assert that there is the little relationship on the margin between the amount of taxes paid and the amount received. The rules are undoubtedly complex and based on average earnings over a long period of time, yet there is almost no connection between one’s social security taxes on an extra hour of work and the benefits for that extra hour of hard work (Buchanan).

Advocates of privatization would like social security to be replaced by some form of personal accounts, such as IRA. In IRA, the amount deducted for the account produces a definite benefit upon retirement. As an example, a man may earn $10 out of which $1 is deducted for IRA. This dollar is sure to produce a benefit for the man thirty years later when he retires. In the case of social security, on the other hand, there is no clear-cut connection of the dollar to retirement benefits. Hence, social security payments look like taxes to those who wish for privatization of the social security system. These people also believe that such taxes deter work effort and create a dead weight loss. The privatization of social security or reform by which personal accounts are created by the system should reestablish the relationship between marginal payments and marginal benefits (Buchanan).

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